Development with a friend advice?

adamfernadam

Hi all,
I have chance to buy a friends parents house before it goes on the market..at an extremely good price. It needs a fair bit of work, and will be renovated purely to get back on the market with a nice profit attainable.

I personally have around 3/4 of the cash needed for purchase and renovation. I would like to go 50/50 on the project with a friend, we have both been looking for a project for a while. He doesn't have a lump cash amount though, maybe only 10 or 20k.

So to sum up..I can pay half the purchase and renovations with cash.
He can pay his half of the renovations but not the purchase price without borrowing somehow.

What is the best, and cheapest for us both, way to deal with this situation please?
The renovation would take 2 months tops and then it would be back on the market again, a tenant can be easily found quickly if it doesn't sell as we wanted.

Thanks for any help.

anselld

Not sure about funding, but a couple of points to note.
Buy-Sell within 2 months makes the property virtually unmortgageable for your eventual buyer.
Buy-Renovate-Sell property which is not your home classes as property trade and will be liable to income tax.

googler

anselld wrote: »

Buy-Sell within 2 months makes the property virtually unmortgageable for your eventual buyer.

Last I heard, it was 6 months ...

anselld

googler wrote: »

Last I heard, it was 6 months ...

Yes six months, indeed. I was just referring to the OPs intention to do it in two months.

adamfernadam

Thanks for replying...
Could you explain a little more about the point you made about it being unmortgageable for a buyer?
I'm new to a lot of this sorry.
Also isn't the tax based around the final selling price to a new buyer?

The renovation would probably take us less than 2 months, but then if it's marketed it obviously may be on for a while before selling, although ideally it obviously sells quickly. Certainly from my point of view as it's a cash purchase then I'm not losing anything with loan payments etc..

anselld

adamfernadam wrote: »

Thanks for replying...
Could you explain a little more about the point you made about it being unmortgageable for a buyer?

Most (all?) mortgage lenders just don't like it. They are afraid you are money-laundering or committing some other fraud.

adamfernadam wrote: »

Also isn't the tax based around the final selling price to a new buyer?

Probably over simplifying, but ...
If you buy property to live in as your main residence - no tax.
If you buy property to rent, then sell that is property investment. Income tax applies to the rental income and capital gains tax to the sale profit.
If you buy property to refurbish and sell on then that is classed as property trade and all profits on sale are subject to income tax.

adamfernadam

anselld wrote: »

Most (all?) mortgage lenders just don't like it. They are afraid you are money-laundering or committing some other fraud.



Probably over simplifying, but ...
If you buy property to live in as your main residence - no tax.
If you buy property to rent, then sell that is property investment. Income tax applies to the rental income and capital gains tax to the sale profit.
If you buy property to refurbish and sell on then that is classed as property trade and all profits on sale are subject to income tax.

Thanks again..

So for point 1 then, what is the best way to do it for the purposes of selling it again ASAP? Without it looking dodgy, which it certainly isn't!

And point 2..the plan is to refurbish it then to sell on again..so that would be liable for income tax? Is this based on different levels for different selling prices? The final selling price would be around 170k if that's any help.
The option to get a tenant in to rent it, would only be thought about if it happened to be sat up for sale for too long, although I'm quite positive that wouldn't happen.

Annisele

On the six month issue, there are mortgage lenders that don't require the vendors to have owned the property for six months. But you might find lenders/surveyors are reluctant to value the property at the amount you need for a sale - if they can see that it sold for £130k two months ago, they'll need some persuading that it's worth £170k today.

What sort of renovations are you talking about? If it's just a lick of paint, you're unlikely to increase the value much, if at all. If you'll be installing a kitchen and bathroom into a property that doesn't currently have one, then you'll definitely increase the value (even if you don't make a profit) - but the fact the property needs such extensive renovation will make it harder for you to get finance to buy it in the first place.

On the tax point, tax is based on the profit you make, not on the absolute selling price. How it's calculated depends on whether we're talking income or CGT.

adamfernadam

Annisele wrote: »

On the six month issue, there are mortgage lenders that don't require the vendors to have owned the property for six months. But you might find lenders/surveyors are reluctant to value the property at the amount you need for a sale - if they can see that it sold for £130k two months ago, they'll need some persuading that it's worth £170k today.

What sort of renovations are you talking about? If it's just a lick of paint, you're unlikely to increase the value much, if at all. If you'll be installing a kitchen and bathroom into a property that doesn't currently have one, then you'll definitely increase the value (even if you don't make a profit) - but the fact the property needs such extensive renovation will make it harder for you to get finance to buy it in the first place.

On the tax point, tax is based on the profit you make, not on the absolute selling price. How it's calculated depends on whether we're talking income or CGT.

Thanks again for your continued help..

How do full time property developers sell again quickly then, after short sub 6 month renovations?

The property was on the market up until sept last year at 160k. It was defiantly overpriced though. The houses that sold on the street, that have already had all the work done that this one needs, even with a slightly more average finish, were selling for between 160 and 170k at the back end of 2013. the whole layout is wrong and it needs totally modernising, new kitchen, bathroom, and extra bathroom and bedroom, windows, decor, carpets, skimming, landscaping etc etc, plus the loft conversion is old and has been done on the cheap and doesn't comply with building regs .we are both in the building trade though and the work can be done to a high standard at trade price with ourselves doing the work.

The owners are desperate to get away and retire abroad, and recently said they would take 120k for it, with possibility to deal further. It could be got for 110k. The profit after works could be around 30-35k?